AIAI Group Corporation

Operation of licensed nursery schools depends on national and local government subsidy programs and privatization policies. If policy shifts or subsidy cuts occur, expansion of the childcare business could halt, affecting business performance. Since the compensation system for multi-function facilities is revised every three years, a reduction in compensation rates would also directly affect the financial position. While the establishment of the Children and Families Agency and the Cabinet's approval of the "Children's Future Strategy" currently provide favorable tailwinds, the risk of policy change remains ever-present.

Licensed nursery schools, small-scale childcare facilities, and multi-function facilities are all operated based on government licensing and designation. If significant operational impropriety is found, facilities could be subject to administrative dispositions such as suspension of operations or revocation of licenses. No grounds for revocation currently exist, but if revocation were to occur, revenue from the facility concerned would disappear, materially affecting the group's overall business performance.

Capital expenditure for new facility openings is financed mainly through borrowings from financial institutions, and as of March 31, 2026, the ratio of interest-bearing debt to total assets stood at a high level of 72.19%. A sharp rise in interest rates would increase interest expense, and if fundraising as planned becomes difficult, it would also hinder plans to open new facilities. The high financial leverage is a factor that increases financial vulnerability during periods of deteriorating business performance.

The Childcare Business holds numerous fixed assets such as facility buildings and equipment. If business performance deteriorates significantly and investment recovery becomes difficult, or if a decision is made to withdraw from a facility, impairment processing would be required. Since new facilities tend to operate at a loss for the first two to three years after opening, the risk of impairment is likely to materialize if occupancy rates continue to fall below expectations.

Securing qualified personnel such as nursery teachers, childcare workers, and child development support managers (jihatsukan) is a prerequisite for business operations, and the number of personnel required continues to expand as new facilities increase. If a significant shortage of personnel occurs at operating facilities for any reason, proper operation of the facilities would become difficult, affecting business performance. The company is responding by increasing recruitment staff and conducting annual training programs, but the shortage of nursery teachers is a structural issue affecting the entire industry.

New facilities tend to operate at a loss for several years from the first year of opening, due to low occupancy rates from unfilled capacity in older age classes, combined with upfront fixed costs such as staffing costs, recruitment expenses, training costs, and depreciation. While facilities typically become profitable from the second or third year after opening, if opening plans are delayed or cancelled due to difficulty securing land, staff shortages, or opposition from local residents, there is a risk that plans will not be achieved. As long as the aggressive facility expansion strategy continues, this structural upfront cost risk will persist.

The Childcare Business targets residents in Japan, and the number of users fluctuates due to the declining birthrate, population decline, and changes in social structure. The group has concentrated its facilities in the 23 wards of Tokyo, within Chiba Prefecture, and within Osaka City, premised on continued population inflow into urban areas. If unexpected population decline or changes in social structure occur, facility occupancy rates could decline, affecting business performance.

Childcare facilities and multi-function facilities hold personal information of users, guardians, and family members, such as names, addresses, and occupations. If a leak occurs, it could damage social credibility and potentially affect the licensing or designation of facilities. While a strict management system has been established, risks such as cyberattacks and internal misconduct cannot be eliminated.

Representative Director Sei Sadamatsu is the founder and is well-versed in the childcare industry, playing an important role in formulating management strategy. While the company is delegating authority to executives and developing its governance structure, if he becomes unable to continue his duties, it could hinder management decision-making and business execution.

The company has introduced stock options in the form of subscription rights to shares and a restricted stock compensation program, and is expected to continue utilizing subscription rights to shares for fundraising purposes as the business expands going forward. If these are exercised or issued, the value per share could be diluted, potentially affecting stock price formation. As of the filing date of this document, there are no exercisable subscription rights to shares outstanding.